China money rates edge up on maturing deposits

Reuters Staff

3 Min Read

* Maturing fiscal deposits pressure liquidity
* Month-end factors make banks cautious over lending
* Conditions remain relatively relaxed
* But a dealer sees market as 'fragile'
By Gabriel Wildau
SHANGHAI, March 20 (Reuters) - China's money rates rose
moderately on Tuesday, as maturing fiscal deposits and month-end
factors crimped interbank liquidity.
"It seems like Chinese banks in the market aren't offering
much money," said a dealer at a foreign-invested bank in
Shanghai.
Fiscal deposits totaling 50 billion yuan ($7.91 billion)
matured on Tuesday, sucking liquidity out of the banking system.
The central bank drained an additional 50 billion yuan via
28-day repos on Tuesday morning.
The Ministry of Finance will issue a new tranche of 50
billion yuan in six-month fiscal deposits on Thursday.
Despite the small rise, interbank rates are still low
compared with the levels prior to the central bank's cut in
required reserve ratios on Feb. 24.
The benchmark weighted-average seven-day bond repurchase
rate rose 11.61 basis points to 3.0074 percent
near midday.
Five-year interest-rate swaps edged up 4 bps to
3.46 percent near midday.
Month-end factors also played a role in the moderate
tightening. Banks are subject to quarterly capital adequacy
ratio inspection at the end of this month.
Interbank loans are included in risk-weighted assets, so
banks may refrain from lending - even if they have cash on hand
- in order to boost their reported ratios.
The new influx of fiscal deposits should help ease
conditions starting Thursday, but the 14-day rate may still rise
further in the coming days on month-end factors.
A rise in the seven-day rate could follow next week, as the
term of such loans begins to cross the month-end period. But the
overnight rate, which isn't influenced by month-end factors,
should remain low, as overall liquidity remains loose.
Month-end factors aside, market participants remain uneasy
over the outlook.
"Things are fine now, but the market is very fragile. If
something happens - if the central bank suddenly re-starts bill
issuance, or increases repo issuance - the market will get tight
quickly," said the dealer in Shanghai.
Current Prev close Change
(pct) (bps)
7-day repo 3.0074 2.8913 +11.61
7-day SHIBOR 2.9983 2.8883 +11.00
Note: Repo rate is weighted average.
($1 = 6.3233 Chinese yuan)
(Editing by Richard Borsuk)